Posts tagged with: World food price crisis

Fertile Ground for Farm Subsidy Cuts

By Elise Amyx

With debt and budget negotiations in gridlock, and a growing consensus that federal spending at current levels is unsustainable, political support for farm subsidies is waning fast. What’s more, high crop prices and clear injustices are building bipartisan support for significantly cutting agricultural subsidies in the 2012 Farm Bill.

The New Deal introduced an enormous number of agriculture subsidy programs paved with good intentions to help struggling farmers, create a stable food market and alleviate poverty. While many other industries have been deregulated since the Depression-era reforms, agricultural subsidies have grown. Now considered by some to be America’s largest corporate welfare program, it is obvious that the government has failed to meet its original goals.

The glaring injustices built into farm subsidy policies explain why so many on both the political right and left routinely describe them as immoral. Subsidies reward large commercial enterprises — in good times and bad — and shut out small farmers. Developing countries that desperately need to boost agricultural exports cannot compete with subsidized, over-produced crops from wealthy nations. Subsidies also drive up the cost of food for the poor and working families.

Iowa farmer Mark W. Leonard, in a 2006 Wall Street Journal interview, described how he brought a farmer from Mali to talk to local church gatherings about the adverse effects of subsidies. “From a Christian standpoint, what it is doing to Africa tugs at your heartstrings,” he said. The bottom line is that the large, commercial farmers win and everyone else loses.

Rural communities dependent on farming seem to have the long end of the stick, but this isn’t true. According to an Iowa State University study, the most highly subsidized areas in the United States are seeing little to no economic growth. In counties where farm payments are the biggest share of income, job creation is very weak. This can possibly be attributed to highly subsidized agribusiness buy outs of family farms. It is ironic that farm payments are intended to foster growth but instead they appear to be linked with subpar economic performance.

Though meant to support the incomes of farmers and promote rural economic growth, subsidies are making rich farmers richer. Subsidies don’t usually end up where they are most needed because the top 10 percent of recipients receives 74 percent of the payments. Instead of helping those most in need, farm payments are just another failed government welfare program.

Agricultural subsidy programs are funded by taxpayers’ dollars and end up raising the cost of food for the domestic consumer. In other words, we are paying for subsidies twice over. Even though price supports are intended to stabilize food production and thus prevent wild price swings, a Heritage Foundation research report found that consumers actually end up spending more on food in the long run when all price distorting effects are considered. Commodity subsidies encourage overproduction and lower prices, but the Conservation Reserve Program encourages underproduction and raises prices. Tariffs raise the price of imported food. For example, the sugar program operates as a cartel by controlling prices and limiting imports, which significantly raises the cost of sugar.

It is poor budgetary stewardship on the government’s behalf to fund a program with taxpayer dollars that makes food more expensive for consumers. According to the Heritage Foundation, the Organisation for Economic Co-operation and Development estimates the average household spent “$216 in annual taxes in addition to $104 in higher food prices.”

Subsidy payments are commodity specific, so unless you’re growing corn, wheat, soybeans, or another subsidized crop, you’re on your own. Jack Thurston, co-founder of FarmSubsidy.org told Time Business, “The bigger you are, the more subsidies you get. It is the reverse of what you think a subsidy is.”

Because farm payments often encourage overproduction and consolidation of agribusinesses, the price of land is inflated, which makes it very difficult for would-be farmers to enter the market. Rather than giving them a fair opportunity, subsidies undermine the entrepreneurial spirit of young domestic farmers.

Commodity price supports, export subsidies and tariffs drive commodity prices below the world price, which makes it difficult for foreign countries to compete. Surpluses of overproduced U.S. crops are dumped on the international market at prices well below the cost of production, creating even more price volatility. Many poor nations have few other options outside of subsistence farming. Subsidies keep poor nations poor and dependent on developed countries.

There is no doubt that farming is a difficult, volatile business filled with risk and uncertainty — and so are many other successful industries that do not receive any government hand outs. Farmers receiving payments should be careful not to view the government as a savior, who will reduce risk, create certainty and save the day if something bad happens. This is a dangerously dependent position to be in, and it is morally problematic when it comes at the expense of everyone else.

A farmer from Mississippi by the name of Lanier, in a recent call in to NPR, said he doesn’t need the government to help him run his business: “I’m not going to be very popular with this comment, but my family has farmed [6,000] to 8,000 acres every year. We own about five of that and lease the rest depending on what we think the market conditions will be. But, quite frankly, we don’t need these subsidies … we being the larger farmers; we’re getting paid seven digits to not farm areas of our farm. That’s ludicrous. […] We cry, hey, it’s a risk. But tell me what business there is out there that doesn’t have a risk.”

Agricultural subsidies make little economic sense and they display many of the problems that characterize other large welfare programs: injustice, dependency and a slew of unintended consequences.

But, good news might be just around the corner. Recent reports suggest agricultural subsidies will see drastic cuts in the upcoming farm bill due to high commodity prices and the budget crisis. Americans should be cautiously optimistic that America’s largest corporate welfare program will take a big hit in 2012.

Last week, Pope Benedict XVI addressed the annual conference of the UN Food and Agriculture Organization, and expressed particular concern over rising food prices and the instability of the global food market. In his 2009 encyclical Caritas in Veritate, the pope issued this challenge: “The problem of food insecurity needs to be addressed within a long-term perspective, eliminating the structural causes that give rise to it and promoting the agricultural development of poorer countries.”

Acton’s Director of Research Samuel Gregg has done much to illuminate those structural causes and their effects on the agricultural capacity of developing countries. In an interview with EWTN two months ago, he talked about two of the most important drivers of high food prices: farm subsidies and energy costs.

“All the subsidies that go into agriculture—through things like import taxes and tariffs, as well as direct subsidies—have the paradoxical effect of reducing the incentive for investment in agriculture in developing countries,” said Dr. Gregg. African farmers cannot compete with their counterparts in the first world who are able to sell their produce at artificially low prices, and so developing countries end up turning away from food production. In the long run, this decrease in supply causes prices to rise.

Energy prices also affect the cost of food: the more a farmer pays for gasoline, the more he has to recoup from the sale of his crops. Again, market imbalances are causing prices to rise—OPEC, the cartel that controls a substantial amount of the world’s crude oil, determines its supply, and so “there’s a disparity between supply and demand,” Dr. Gregg explained. “OPEC and other oil-producing countries introduce a whole range of price distortions into the energy sector, resulting in higher prices”

U.S. energy policy is also to blame: from drilling moratoriums to ethanol subsidies, the federal government has effectively introduced inefficiency to energy markets.

Developing countries must be allowed to produce food without being undercut by Western protectionism and too-costly energy. When free markets are hindered, the poor suffer most.

Kishore Jayabalan, Director of the Acton Institute’s Rome office, made an appearance today on Vatican Radio to discuss efforts by the G-20 nations to address the growing problem of rising food prices around the world. Jayabalan discusses how natural events and bad policy are both contributing to the sharp rise in prices seen of late. Listen to the full interview using the audio player below:

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